10 Myths About IRS Audits

Self-employed People Get Audited More
Just because you have your own business doesn't mean you're more likely to be audited. But filing a Schedule C does raise the chance a little bit. Szepy/iStock/Thinkstock

Well, that depends on your definition of self-employment.

"Anyone who doesn't work for another person or entity is self-employed," points out accountant Nisall, which doesn't mean they are automatically targeted. "What people usually mean is that 'Schedule C businesses get audited more often,' and that is true to a degree."

According to Nisall, returns with a Schedule C are selected at a higher rate than those without them, and for good reason. A sole proprietor is the business and vice versa in the eyes of the IRS. What that means is that there is not a distinction between the two as there is between a shareholder and the incorporated entity he or she owns a part of.

This makes it very easy for comingling of funds and using those funds for personal gain. And, because so many sole proprietorships are cash-based and don't require large office accommodations, it's very easy for the proprietors to fail to report cash income and take liberties with household expenses as business deductions.

Even so, the chances of getting audited because you attached a Schedule C to your tax return are incredibly low – about 3 percent [source: Nitti].